TY - JOUR
AU - Giglio,Stefano
AU - Maggiori,Matteo
AU - Stroebel,Johannes
TI - No-Bubble Condition: Model-free Tests in Housing Markets
JF - National Bureau of Economic Research Working Paper Series
VL - No. 20154
PY - 2014
Y2 - May 2014
DO - 10.3386/w20154
UR - http://www.nber.org/papers/w20154
L1 - http://www.nber.org/papers/w20154.pdf
N1 - Author contact info:
Stefano Giglio
University of Chicago
Booth School of Business
5807 S. Woodlawn Avenue
Chicago, IL 60637
Tel: 773/834-1957
E-Mail: stefano.giglio@chicagobooth.edu
Matteo Maggiori
Department of Economics
Harvard University
Littauer building
1805 Cambridge Street
Cambridge, MA, 02138
E-Mail: maggiori@fas.harvard.edu
Johannes Stroebel
Stern School of Business
New York University
44 West 4th Street
New York, NY 10012
Tel: 650/888-3441
E-Mail: johannes.stroebel@nyu.edu
AB - We test for the existence of housing bubbles associated with a failure of the transversality condition that requires the present value of payments occurring infinitely far in the future to be zero. The most prominent such bubble is the classic rational bubble. We study housing markets in the U.K. and Singapore, where residential property ownership takes the form of either leaseholds or freeholds. Leaseholds are finitematurity, pre-paid, and tradable ownership contracts with maturities often exceeding 700 years. Freeholds are infinite-maturity ownership contracts. The price difference between leaseholds with extremely-long maturities and freeholds reflects the present value of a claim to the freehold after leasehold expiry, and is thus a direct empirical measure of the transversality condition. We estimate this price difference, and find no evidence for failures of the transversality condition in housing markets in the U.K. and Singapore, even during periods when a sizeable bubble was regularly thought to be present.
ER -